Keep Telling Yourself It's the Safest Way to Travel

My brother's flight from Los Angeles to Honolulu on Thursday was delayed by a stuck door handle. The pilot announced that the problem was "fixed" and the United Boeing flight went on to Honolulu.

Normally I wouldn't have given the matter a second thought but for the spate of recent headlines:

February 6: Boeing 737 MAX Missing Critical Bolts in Alaska Airlines Blowout, NTSB Says

April 9: Boeing Engineer Says Company Used Shortcuts to Fix 787 Jets

April 17: Boeing’s Quality Complaints Mount as Another Whistleblower Comes Forward

We all were relieved when brother landed safely.

For the first time in my life, I'll check the price of flight insurance the next time I take a Boeing flight.

Commercial Aviation: It's Worse Than You Think

The Kinsley Gaffe--defined as politicians saying a truth that they had not intended to reveal (for example, what they really thought about some of their supporters)--is a political term, but it can apply equally to business leaders. For example, here's Boeing CEO David Calhoun: [bold added]

Now he smiles rarely (Chicago Trib)

Boeing’s report came as Chief Executive David Calhoun painted a dire near-term outlook for the airline industry, saying growth wouldn’t likely return to 2019 levels for three to five years.

Mr. Calhoun told NBC’s “Today” show that passenger traffic won’t be up to 25% of pre-pandemic levels by September, possibly approaching 50% by the end of the year.

He predicted the collapse of air-travel demand would “most likely” force a major U.S. carrier to go out of business.

Mr. Calhoun and Boeing have been trying to walk back his statement that United, American, or Delta will go out of business, but that's what many analysts within the industry are already saying.

From an aviation webinar: how many companies will survive until 2023?

In "normal" aviation downturns, there are always some bright spots in the industry. For example carriers may postpone new deliveries but keep operating older airplanes intended for the scrap heap, and the MRO (maintenance, repair, and overhaul) sector of commercial aviation does well.

This time demand has fallen so drastically that old and new airplanes are being put in storage, which means that airplanes requiring multi-million dollar overhauls per FAA regulations are themselves parked and a new one pulled out of inventory. There's much lower demand for MRO in the next two years.

To an industry that operates on thin margins and high fixed costs and debt, conditions are the worst that anyone can recall (9/11 was a blip compared to COVID-19). The number of players who have cash and credit resources to survive until 2023 is minuscule.

I'm glad to be retired.

A Fond Farewell

As we say goodbye to 2018, we bid a fond farewell to the Boeing 747 passenger jet, which technology and consumers' preferences have rendered obsolete.

The 747 cargo version will continue.

The newer planes, which include the Boeing 787 Dreamliner, are redrawing the map for global air travel. They can fly just as far as the jumbos, but often are less expensive to operate on a per-seat basis. They allow airlines to offer multiple flights on routes that once justified only a single big aircraft. That helps fill seats and boost profits.

...for many international travelers, the shift is eliminating what has been an almost mandatory stopover in a global airport hub such as New York, London, Dubai or Singapore.

“Since the dawn of air travel, people always wanted to fly direct,” says Ihssane Mounir, Boeing’s chief jetliner salesman. Smaller planes have changed the economics of the industry, he says, and have “pushed big aircraft, to some extent, out of the market.”

The Qantas 747 upper deck (runwaygirlnetwork)

In the 1990's your humble blogger averaged more than one international flight per month over several years, which was not unusual for business people connected to commercial aviation.

Most of the flights took place on the 747. Psychologically, there's a sense of security in knowing that the airplane has four engines when taking long-distance flights over water (even if three engines are out, the 747 can fly on one engine in an emergency; there's obviously less margin for error in twin-engine aircraft).

On a few occasions I got to ride in the upper deck, the symbol of luxurious air travel.

In most respects life is better today. But in business air travel? Not so much.

Dream(liner) On

Boeing's stock price has fallen 20%--about $20 billion of market value---since the beginning of 2016, more than three times the decline in the Dow Jones Industrial Average. The primary reason, initially, was softening demand for the 777 and 737 and worries that the aviation up-cycle was getting long in the tooth.

Barron's:

1. 777 transition: Although Boeing has finally conceded to a weaker than hoped demand environment, and cut the 777-300 rate to 7/month, there is concern that there could be further downside...

2. The Cycle: Look back over 40 years, and Boeing is clearly a cyclical stock....with aerospace into year 7 of this up-cycle, there is nervousness about how long the good times can last. About half of the Boeing Commercial Aircraft backlog is exposed to emerging markets, where there are real concerns over growth and FX pressures...

3. 737 transition: Perhaps the biggest bombshell in the 4Q15 results was the unexpected dip in 737 deliveries this year.

Last week's revelation that the SEC was looking into Boeing's accounting was The Straw That Broke the Camel’s Back, according to stock analysts.

In 2015 Boeing received 71 Dreamliner orders, only
157 to go to reach the 1,300 target. (Boeing table)

Boeing is one of the few companies that uses program accounting, which spreads the cost of development over the lifetime production of an aircraft model. Both cost and future production are Boeing estimates not easily verifiable by auditors and other outsiders.

For the 787, $28.5 billion of development cost will be spread over 1,300 Dreamliners.

Boeing's balance sheet from sec.gov

If more costs straggle in, or if demand turns out to be less than 1,300 units, billions of dollars of charge-offs could occur.

$28.5 billion comprises a significant portion of Boeing's $94.4 billion balance sheet. By the way, this amount resides in Inventories of $47.257 billion, which in turn are part of Current Assets, which most accountants define as assets that can be turned into cash within one year.

Dream(liner) on.